Lloyds Banking Group has been assessing whether chief executive Antonio Horta-Osorio, off work with stress, should return to his position with the British lender, a source involved in the process said.

The appraisal will include meetings between Horta-Osorio and board members -- a move investors said signalled the growing likelihood Horta-Osorio would step down from his post.

The Financial Times reported Horta-Osorio would have to reapply for his own job.

The board has got a process in place to assess Antonio's health and whether he can return to work, the source said on Friday. They would like to be able to make a decision before Christmas.

Lloyds, 40 percent owned by Britain after a government bailout during the 2008 credit crisis, shocked investors last month by saying 47-year-old Horta-Osorio was taking a break due to stress-related illness.

The source said Lloyds had an independent medical expert working on the situation and was in regular contact with UKFI -- the body managing Britain's stake in the bank -- and the Treasury over the matter.

Lloyds shares were up 1.4 percent at 25.46 pence in early morning trade -- compared with the 63 pence average price at which the Britain acquired its stake.

West LB analyst Neil Smith said: It does seem to show good governance procedures and it may help to settle nerves later on.

SVM Asset Management fund manager Colin McLean said: I am sceptical over whether he is coming back.


Lloyds has set up back-up plans should Horta-Osorio not return. Finance director Tim Tookey, due to move to insurer Resolution in February, has been caretaker CEO.

Last month, the bank said David Roberts, a 49-year-old non-executive director and former Barclays executive, would become interim CEO in the event of a delay in Horta-Osorio's return.

The bank has appointed George Culmer from insurer Royal & Sun Alliance as finance director.

Under Horta-Osorio, who took up the CEO role in March, Lloyds embarked on a restructuring that entails 15,000 job cuts and a retreat from many overseas operations.

Lloyds also has to dispose of 630 retail bank branches in a deal known as Project Verde, in return for its state aid.

Britain finished up with its stake in Lloyds and 83 percent of Royal Bank of Scotland after having to bail out both banks.

(Editing by Hans-Juergen Peters and Dan Lalor)